Instability constraints and development traps: An empirical analysis of growth cycles and economic volatility in Latin America

Danilo Sartorello Spinola

#2018-002

Latin America is a region marked by an endogenous pattern of volatility
that halts its development process. This article consists of empirically
testing its volatility characteristics in terms of cycles. This paper
(1) uses a filter decomposition to isolate economic cycles of distinct
natures on the GDP growth time series for 136 countries covering the
period 1950-2016. (2) It calculates each country's cycle GDP volatility
(standard deviation), and finally (3) applies clustering methods to
classify the results into groups. The main conclusions point that the
majority of Latin American countries the relative dominance of the
long-run economic cycles explaining the overall volatility. Exceptions
to that are Mexico, Colombia and Chile, in which the short-run cycle
shows a higher relative importance. Data shows that LAC is not the most
volatile region of the world, but it has some characteristics as a
region in terms of the origin of their volatility.